How to Find Total Debt on a Balance Sheet
Understand a company's financial health. Learn to accurately identify and calculate its total debt using balance sheet data.
A balance sheet offers a financial snapshot of a company at a specific point in time, providing insights into its assets, liabilities, and owner’s equity. Understanding a company’s debt is important for assessing its financial health and stability. This financial statement helps various stakeholders, including investors and creditors, evaluate how a company finances its operations and its ability to meet its financial obligations.
Understanding the Balance Sheet Layout
The balance sheet is structured around the fundamental accounting equation: Assets = Liabilities + Equity. This equation illustrates that a company’s assets, which are what it owns, are financed either through liabilities, which are what it owes, or through equity, representing the owners’ stake in the company. The balance sheet is typically divided into two main sections that must always balance.
On one side, assets are listed, usually categorized as current assets (those convertible to cash within one year) and non-current assets (long-term assets). The other side details liabilities and equity. Within the liabilities section, obligations are typically separated into current liabilities and non-current liabilities based on their due dates. This clear categorization helps in understanding the short-term and long-term financial commitments a company has undertaken.
Identifying Debt Categories
The liabilities section of a balance sheet details a company’s financial obligations, categorized by maturity. Current liabilities represent obligations due within one year or one operating cycle, whichever is longer.
Common current liabilities include:
Accounts payable, money owed to suppliers for goods or services purchased on credit.
Short-term loans, including lines of credit maturing within twelve months.
The current portion of long-term debt, representing the part of a long-term loan due for repayment within the upcoming year.
Accrued expenses like unpaid salaries or utilities.
Taxes payable to government authorities.
Non-current liabilities, also known as long-term liabilities, are financial obligations that are not due for more than one year. Examples of non-current liabilities include long-term loans, which are borrowings with repayment terms extending beyond twelve months. Bonds payable, representing debt securities issued by the company to raise capital, are also classified as long-term liabilities. Notes payable with maturities exceeding one year, long-term lease obligations for assets, and deferred tax liabilities, which arise from temporary differences between accounting and tax rules, are further examples.
Calculating Total Debt
To determine a company’s total debt from its balance sheet, you will combine specific line items from both the current and non-current liabilities sections. The calculation involves identifying all interest-bearing debt obligations. This typically means summing up short-term debt and long-term debt.
You would locate figures such as “Short-Term Loans,” “Current Portion of Long-Term Debt,” and similar short-term borrowings under current liabilities. Then, identify “Long-Term Loans,” “Bonds Payable,” and “Notes Payable (long-term)” within the non-current liabilities section. Adding these specific debt figures together provides the total debt. For instance, if a company has $50,000 in short-term debt and $150,000 in long-term debt, its total debt would be $200,000.